No prosecutions here please

Here in Bristol there has been widespread support for the consignment of Edward Colston’s statue to the bottom of the harbour.  It was a vile relic of slavery and evidence of how far the city has yet to go in tackling the more shameful part of its history.

Keir Starmer says this treatment of the statue was “completely wrong”, a statement which has not resonated well locally.  He would have been on firmer ground joining Bristol’s mayor Marvin Rees, who merely said that as a democratically elected politician he could not support breaking the law.  What Marvin went on to add was that that keeping a statue in Bristol to commemorate a man who may have enslaved one of Marvin’s ancestors was an “affront” to him personally, a sentiment presumably understood by every decent human being.  However, attempts by our democratically elected politicians to remove it have been stymied in the past, most notably by the Society of Merchant Venturers (which made its original fortune from slavery).

With the sinking of the statue, the penny also seems suddenly to have dropped.  Colston Hall has hastened to repeat its earlier promise to change its name in the course of its current refurbishment.  Colston Girls School has already removed their pint sized replica of the statue, and the residents of Colston Road are calling for their street to be renamed.  Even the Merchant Venturers have spoken, though only to say they are continuing to educate themselves about systemic racism.

However, our Prime Minister and Home Secretary are now calling for prosecution of those who sent Colston to the murky depths and the police have just identified 17 suspects.

A short retort to this should come from our Police and Crime Commissioner, Sue Mountstevens.  She needs to tell the police that there is no public interest in prosecuting anyone for removing this gross affront.  And Bristol City Council, presumably the owners of the statue, should tell the police firmly that they will not support a prosecution, and should decline to make any statement in support of it.  The Society of Merchant Venturers might like to chip in with its support as well.

Memo to Keir Starmer: Criminalising members of the public in these circumstances is ‘completely wrong’.

The real drug problem

A career spent in criminal law is a great education on the impact of current drug policy. So many clients lose children, to shootings or stabbings or overdoses or to prison.  So many clients grew up with one or more parents missing. Not to mention the specific horrible impacts of the drug trade on women.

So when I retired from partnership I got involved with Transform Drugs Policy Foundation, a charity with global reach and a impressive track record in stimulating new initiatives locally, nationally and internationally.

Transform’s message is to  acknowledge that we have lost the ‘war on drugs’. Prohibiting their use has supercharged a vast illicit market, creating narco-states, and even civil war. The collateral damage around the world is simply intolerable. See the report  prepared by Transform for more detail on just how bad the situation is.

Tuesday 26 June is the UN’s International Day against Drug Abuse and Illicit Trafficking. There will be a lobby of Parliament in the afternoon, called by a coalition of drug policy organisations.

What we are asking for is simple. We want a rational and humane system of drug regulation that controls dosage, purity, age of purchase, conditions of consumption and marketing.   That focuses on health and education instead of punishment. That takes the profit element out of play, and drugs out of the hands of criminal cartels.

Humane regulation can be done. It is not difficult. Canada is legalising and regulating cannabis. So are a variety of US states, as well as Portugal. Uruguay has decriminalised the possession of all drugs.

The climate here is beginning to shift. The case for changing the law is gaining momentum, even in the UK.  If everyone who agrees could write now to their MP it will have maximum impact.

Extra Teeth for the Criminal Finances Bill?

The Guardian ( reports that Margaret Hodge will today table an amendment to the Criminal Finances Bill 2016 requiring British overseas territories to reveal the true owners of locally registered companies.

Good for her. Apparently half the corporate entities exposed in the Panamanian firm Mossack Fonseca’s trove of tax evasion schemes were registered in the British Virgin Islands. Other such overseas territories include Turks and Caicos, Anguilla, and the Cayman Islands.

The Criminal Finances Bill promises stronger controls on tax evasion, giving NCA, HMRC and the SFO extra-territorial reach to deal with British companies and partnerships which facilitate it anywhere in the world.

But the enforcement issues remain a challenge – if companies established as vehicles for tax evasion can shelter in secrecy overseas, the bill lacks teeth. This amendment, if passed, would require these territories to create an open register by 2020 which anyone may consult. Britain has power to issue an Order in Council requiring compliance if voluntary steps are not taken.

The global anti-money laundering organisation, the Financial Action Task Forces (FATF) has been moving on this issue for some time. In September 2016 their director summarised their significant progress in a speech. Even Panama has been moved to introduce beneficial ownership requirements.

But British overseas territories remain foot draggers on this issue. Earlier this year the BVI added a new s 118B to the BVI Business Companies Act, 2004 requiring registration of a company’s register of directors, but not of the register of members. Other overseas territories have done likewise, or less. Compare that with the UK where companies are now required to keep a ‘Register of People with Significant Control’.

This extra measure would therefore have a radical impact on the ability of tax dodgers and their facilitators to avoid scrutiny, both from government and the court of public opinion. So all strength to Margaret Hodge and the cross party group of 80 parliamentarians said to support her.

What are its chances? Probably not great. David Cameron met with significant pushback from the overseas territories in May when he pressed them on this issue. Had the current government wanted to show its teeth on this it had its chance at the drafting stage.

This is likely to become another opportunity lost.

Who is Donald F McGahn?

The role of White House Counsel was invented in the 1950s. For a modest salary of $176,461 its incumbent must keep the President on the straight and narrow (or not, as the case may be). No less than three previous office holders have served jail sentences (Erlichman, Colson and Dean after their respective stints in Nixon’s team). George W. Bush’s pick, Alberto Gonzalez, is meanwhile remembered mainly for his infamous torture memorandum.

Obama soberly picked a former Assistant US Attorney, W.Neil Eggleston, whose track record included prosecuting the corrupt Illinois Governor, Rod Blagojevich.

The next White House Counsel will have the tricky job of steering Donald Trump on a legal Presidential course despite his continued ownership of a complicated global fleet of business interests, licensing arrangements and property deals.   Last week Trump told the NY Times “the president can’t have a conflict of interest”.

He did not mean it was forbidden. He was claiming that a president’s financial interest can never constitute a conflict in law. He’s clearly been getting advice – but who from?

It looks very much like it’s Donald F. McGahn. On Friday it was announced that Trump had appointed him as White House Counsel. A keen libertarian, McGahn has advised a range of Republican politicians. He also served a three year term as Chair of the US Federal Election Commission. He reputedly changed it single handedly from an enforcement agency overseeing fair elections to a ‘non-enforcement agency’. In 2009, the year of McGahn’s appointment, the FEC imposed a total of 248 penalties for election breaches. By the following year that number had dropped to 34.

The choice is a telling one. If law enforcement is slipping down the agenda of the US President the ramifications for the rest of the world will be considerable.  It may look inconsistent with Trump’s pick for Attorney General, the hardliner Jeff Sessions. But it’s not really. The trick here is to pursue a very hard line but confine its operation to the narrowest criteria possible.

That way the occasional unlucky loser (often a foreign owned company like BP) gets the book thrown at it. The rest suffer no action at all.

Is Trump “too big to fail?”

President-elect Donald7Trump has nominated his Attorney General, the charmless US Senator for Alabama, Jeff Sessions.

Sessions has previously been refused judicial office on the basis of past alleged racist utterances. It appears to be well documented that he once called a senior white lawyer “a disgrace” for representing black clients. It is not clear why Trump didn’t think this excluded Sessions outright from the position of senior law officer in the United States Government. No decent country should tolerate such a thing. This point will be made forcibly in confirmation hearings and his appointment may go no further.

But if it does, and if he takes up the role of Attorney General, one additional matter that will interest white collar lawyers is his attitude to corporate crime. In contrast to the prevailing ethos in the Obama administration, not only is he remarkably tough on drugs, he is also remarkably tough on companies that break the law.

The Senate Judiciary Committee hearing on James Cole’s nomination as deputy to Attorney General Eric Holder took place on 15 June 2010. Senator Sessions gave Cole a roasting for his attitude on “Too big to fail”, quoting a speech Cole had made in 2006. “The experience with Arthur Andersen taught the Government something. The consequences were too drastic and hurt too many innocent employees. The Government now tries to work settlements with companies that find themselves in that kind of predicament…”.

Sessions’ comment on this was “It seems to go beyond strict enforcement of the law and try to preserve corporations who perhaps should be charged and suffer whatever consequences might result from their criminal acts”.

Cole defended his position by reference to the thousands of innocent employees and shareholders which might suffer in such circumstances, and went on to be confirmed by a largely Democrat Committee.

But consider this. The DOJ under Loretta Lynch has been pressing Deutsche Bank to pay a £14billion penalty. Donald Trump happens to owe Deutsche Bank over £300 million on various property deals, and it’s said no other bank is willing to extend him this kind of credit.

How will Trump and Sessions sort this one out?  Perhaps ‘too big to fail’ has life in it yet!

The Tide of Change Laps at Wall Street

Later today at New York University’s Law School, Obama’s new Deputy Attorney General, Sally Q Yates, will unveil a memo setting out a new policy for US federal prosecutors investigating corporate crime.   Its contents will chill many corporate executives to their boots.  The memo prioritises the pursuit of individual employees – not just their companies.  The plan is that prosecutors should no longer settle for substantial payments from the company alone.

Yates is a tough cookie.  A career prosecutor, she spent 1994 to 2002 as Chief of the Fraud and Public Corruption Section of the US Attorney’s office, supervising all of the office’s white collar cases.  Since her May 2015 appointment to the Deputy post she has sunk her teeth into the problem of corporate crime resulting in the new memo which was  trailed yesterday by the US Attorney General, Loretta Lynch.  Its contents are potentially a game changer.

Companies under suspicion of criminality which commission their own internal investigations will now be expected to name names. Considerable pressure will be brought to bear on corporations to hand over evidence against senior staff.

UK bankers and corporate executives should think on the scope of US jurisdiction.  Not only can they face extradition to the US but there is a new adversarial spirit across the Atlantic.  This could have transformed the US Attorney’s investigation of the French bank, BNP Paribas, which ended last year in a record $8.9billion in penalties for breaching US sanctions.  There the bank reportedly withheld records concerning individual executives until limitation periods had expired.

There is a reason for all this.  The public appetite for vengeance on those thought responsible for the 2008 crash, austerity and the growing income gap is impacting on the political class.  The astonishingly successful campaigns run by Jeremy Corbyn and Bernie Sanders expose the unstable footings of the existing order.

Even Hilary Clinton promised in July to “prosecute individuals as well as firms when they commit fraud”, so if the US polls are correct the new policy is likely to survive the length of time required to investigate and bring a tranche of corporate executives before the courts.

FCA Director Martin Wheatley too tough? Whose Porridge is Just Right?

George Osborne is still looking for just the right amount of toughness. As part of his Goldilocks routine he seems to have concurred with the city view that FCA Chief Executive Martin Wheatley, who stands down this weekend, was much too hard.

This seems a bit harsh on Wheatley, bearing in mind that Osborne declined to renew SFO Director Richard Alderman’s tenure in 2012 amid accusations that he was much too soft. Alderman thus joined a long list of senior staff in the public sector who left their posts in recent years when they were just too damned soft. Some were pushed, some jumped, and some did not have their terms renewed. Think Brodie Clark of the Border Agency, who fell foul of Teresa May or Cynthia Bower of the CQC.

Many of these appointments were made under New Labour who, in retrospect, do look very soft on regulation generally, and particularly so in relation to financial crime. George Osborne has repeatedly declared his intention to be far tougher on financial crime, but evidently that can go too far.

A tricky job for David Green, then, the current director of the SFO who took over from Alderman almost four years ago. He is thought to have done very well pulling the SFO back from the brink of self-immolation, as the number of dawn raids fell to zero, the conviction rate dropped, and companies were encouraged to investigate their own suspicious conduct (with the unsurprising result that many gave themselves a clean bill of health).

At a speech on Monday this week to the Cambridge Economic Symposium Green listed the achievements of the SFO, which has now ramped up the number of serious frauds it is investigating and has achieved some signal successes recently.

He also called for another very significant change in the law, adding his voice to the growing demand for companies to face a tougher criminal test “moving away from the identification principle of corporate criminal liability in English law and embracing something closer to vicarious liability, as in the USA”. Did he go too far for Osborne’s liking? Only time will tell.

 Let’s hope Green’s porridge is just right.

Important New Money Laundering Advice from CPS – Head for the Islands!

Following revelations in May from the US Department of Justice concerning the Cayman Islands link to the FIFA corruption scandal, questions have surrounded law enforcement on the islands.  I covered these in my blogs of 28th and 31st May 2015 and comments in the Financial Times and City AM

Last week saw the publication of a long awaited report by Claire Wetton of CPS on her review of criminal justice procedures in the Cayman Islands.   The Islands host the fifth largest banking sector in the world, so this is a matter of some consequence to the financial world.

Wetton’s report starts well  “The improvement in prosecutorial capacity generally but particularly that relating to serious financial crime, money laundering, asset recovery and drug trafficking is of benefit to the government of the CI and the UK.

Its readers may therefore have expected a recommendation for substantial new powers, perhaps a memorandum of understanding with the UK’s Serious Fraud Office, and additional financial support for the 300 strong Cayman Police Force.

But no.  The CPS recommendations consists of baby steps such as

  • Ensure the work of a police officer who leaves is handed over to someone else
  • Amend the traffic ticket process                     .  .   .  and best of all  .  .  .  .
  • Divert more offenders from the criminal justice system

So much for UK determination to eradicate financial crime from the international financial system,  proclaimed so often by George Osborne.

What can we conclude from this?  That this is the smack of firm government in the Cayman Islands, or is it maybe a bit of a joke?

The writing is on the wall for money launderers.  Head for the Cayman Islands!

Bashing the Bankers – Have we Reached Peak Prison?

Last week banker Tom Hayes received a record 14 year sentence for his role in fixing the benchmark LIBOR rate.  It turns out he submitted figures to suit his bank’s interests and to enrich himself via an enormous bonus scheme.

The judge who imposed the cracking 14 years was suitably scathing about Hayes behaviour “The conduct involved here must be marked out as dishonest and wrong and a message sent to the world of banking accordingly”.   However, a sentence of this length for white collar crime in the UK is entirely new.  It follows on last year’s new and prescriptive guidelines from the Sentencing Council .  A judge who departs significantly from these is likely to face appeal by either the prosecution or defence.  The most serious example of conspiracy to defraud (Category A) carries a starting point of 8 years.  When Hayes was convicted of 10 offences the total of 14 years consecutive was not so surprising.

Ironically, it was Hayes’ own signed admissions of guilt which sank his defence.  He made these admissions, he said, only to ensure he was not extradited to the United States.  US law enforcement claims jurisdiction over offences involving the slightest engagement with US banking or communication systems.  Using an  IT system which is routed through a US server is enough to make you liable to extradition for financial crimes.

Hayes’ terror of American justice was premised on the heavier penalties traditionally imposed on white collar defendants in the US.  Jeffrey Skilling, CEO of Enron, for example, received a 24 year sentence, reduced on appeal to 14 years.  Bernie Madoff got 150 years.  No-one wants to play by those rules if they can avoid it.

But ironically, just two months before the start of the Hayes trial, the US Department of Justice Sentencing Commission published their own fraud guidelines .   It was clear that fraud sentencing in the US was getting out of hand.  The new guidelines take account of the newly fashionable “harms” basis for sentencing.  These amendments “recognize concerns regarding double-counting and over-emphasis on loss,” said Chief Judge Patti Saris of the federal court in Massachusetts, who chairs the commission.  So the US will be a softer touch in future.

And the final terrible irony for Hayes is that Madoff now resides in “Camp Fluffy”, a prison that beats anything the Brits can offer in terms of comfort, amenity and prison privileges for the wealthy.

FIFA, the Cayman Islands and the SFO

See City AM for more on my call last week for the Government to fund the Serious Fraud Office properly so that it can investigate complex cases which affect the national interest (eg the FIFA scandal).

The SFO has responded that it is now “standing by”, a posture it seems to have held for some time.

Meanwhile, the Observer (Sun 31st May) quotes British MP John Mann as saying that the SFO “can’t investigate these tax havens”. This is interesting but in my view unlikely to be true. The Criminal Justice Act 1987 charges the Director of the SFO with investigating “any suspected offence which appears to him on reasonable grounds to involve serious or complex fraud”. And where the Foreign Secretary receives a request from an overseas court, tribunal or authority the Criminal Justice (International Co-operation) Act 1990 lets him ask the Director to use this power.

So would the Cayman Islands, a British Overseas Territory, ever make such a request? The Cayman Islands Constitution Order 2009 makes internal security, including the police, a responsibility of the Governor, who in turn is appointed by the Queen, and acts on her instructions. In this case, of course, the Queen’s instructions will come via the Foreign and Commonwealth Office. So if there is a problem with the SFO investigating in the Cayman Islands its not the absence of power, it’s the absence of political will at the FCO.

On 1 May 2008 the Public Accounts Committee published a report stating
“. . . .regulatory standards in most Territories are not yet up to those in the Crown Dependencies. Limited capacity also reduces the ability of Territories to investigate and prosecute money laundering. The Department has written to UK agencies, such as the Financial Services Authority, the Treasury and the Serious Organised Crime Agency, to emphasise the need for their involvement”.

Its not clear whether the SFO received one of these letters. Looking at its record in the Caymans Islands, maybe not.

For example, in February 2009 the $639m Weavering Macro Fixed Income fund, which was registered in the Cayman Islands, was liquidated after failing to meet investors’ demands for withdrawals. The SFO was called in shortly afterwards but in 2011 it announced that it had abandoned the investigation. It had second thoughts after the appointment of new Director David Green, and Weavering’s former head Ulf Petersen faced prosecution, starting a 13 years sentence in January this year.

However, the SFO never revisited the case of the lucky Albert Micalizzi. Micalizzi was in the frame for a $390 million fraud involving a Cayman Islands hedge fund. The FSA fined him £3 million and referred him to the SFO, which started its investigation in November 2009 but discontinued it in July 2010, surprisingly quickly for a fraud on that scale, stating that it could find no evidence. Nonetheless, in May 2014 Micalizzi was arrested for the very same fraud by Italian police and remains in jail there to this day.

Its not only the SFO which shares the lack of political will. Last year the Financial Conduct Authority, the U.K.’s financial regulator, published a list of countries that it considers high risk for money laundering and financial crime, following an FOI application. After howls of protest from the business community on the Cayman Islands the FCA pulled that list and replaced it with one that made no mention of the Cayman Islands.

So its clearly a matter of choice at the FCO. No-one ever explains why the Cayman Islands enjoys such a light touch given the risks involved. It looks like no-one wants to rock this particular boat.